27 July 2015

ANTHEM TO BUY CIGNA FOR $48.3 BILLION

The health insurer Anthem said on Friday that it had agreed to acquire its rival Cigna for $48.3 billion in a deal that would further concentrate the United States market to just a few major players.

The combined company would have estimated revenue of about $115 billion and serve more than 53 million people with medical coverage. An Atlanta healthcare litigation attorney is following this story closely.

A flurry of deals are reshaping the industry. Earlier this month Aetna agreed to acquire Humana, the smallest of the big five insurers, for $37 billion in cash and stock. If both transactions are completed, the number of major health insurers in the United States will shrink to three.

Health insurers are seeking to consolidate to gain greater scale to reduce costs and capitalize on growing opportunities in the government and individual markets. A major force has been the Obama administration’s health care overhaul, which has bolstered revenues. But greater transparency in pricing and less generous funding of government plans have also put profit margins under pressure.

Alex Cullen, an analyst with Forrester Research, said that the challenge for all health insurers was moving from “a plan and claim-centric model to a customer-centric model.” Making that transition while completing a merger will be difficult, he said. An Atlanta healthcare litigation lawyer is reviewing the details of this case.

“I would expect a lot of angst within Anthem management on how to execute on a customer-centric strategy,” Mr. Cullen said.

Anthem said on Friday that it expected to achieve nearly $2 billion in annual cost savings as a result of the merger. Anthem said there would be one-time charges of $600 million over a two-year period associated with the merger.

“We believe that this transaction will allow us to enhance our competitive position and be better positioned to apply the insights and access of a broad network and dedicated local presence to the health care challenges of the increasingly diverse markets, membership, and communities we serve,” Joseph R. Swedish, the Anthem chief executive, said in a news release.

Mr. Swedish will oversee the combined insurer.

Anthem, based in Indianapolis, operates Blue Cross plans in 14 states and has a strong presence in offering Medicaid plans. Cigna, based in Bloomfield, Conn., is best known for offering plans through employers and selling other kinds of insurance like dental and disability. A Birmingham healthcare lawyer represents clients in business operations and representative matters.

Unlike Cigna, Anthem has been a major presence on the public insurance marketplaces created by the federal health care law.

The recent appetite for deals among insurers was recently whetted by the Supreme Court’s upholding of the portion of the Affordable Care Act that subsidizes consumers who buy policies through the government’s online marketplace.

Under the terms of the deal, Anthem said it would pay $103.40 a share in cash and 0.5152 share in Anthem stock, or $188 a share. That represents a 38.4 percent premium to Cigna’s closing price on May 28, before news of Anthem’s interest emerged. Based on Cigna’s most recent disclosure of shares outstanding, the deal would value its equity at $48.3 million. Including the assumption of debt, Anthem said the deal would value Cigna at $54.2 billion.

After the deal is completed, Anthem shareholders will own 67 percent of the combined company, while the remaining 33 percent will be owned by Cigna shareholders.

David M. Cordani, the Cigna president and chief executive, will serve as president and chief operating officer of the combined company. The Anthem board of directors will also be expanded to 14 members and will include Mr. Cordani and four independent directors from Cigna.

The transaction is subject to shareholder and regulatory approval, and it is expected to close in the second half of 2016. A Pittsburgh healthcare lawyer represents physicians, hospitals, health systems, long-term facilities and other health care providers in a broad range of health care matters.

The deal has long been foretold. Anthem went public with its offer last month, saying that it had been in talks with Cigna over a possible combination since August.

It is possible that regulators in the United States could block some mergers: Antitrust officials at the Justice Department and the Federal Trade Commission have shown an increasing willingness to do so if they believe the alliances could hurt consumers.

Analysts have said that antitrust regulators would probably allow only some deals to go forward, and that they could stop others if they decided that too much power was being concentrated in too few hands.

The question remains what UnitedHealth Group, the largest health insurer in the United States, will now do.

UBS and Credit Suisse and the law firm White & Case advised Anthem, while Morgan Stanley and the law firm Cravath, Swaine & Moore advised Cigna.